U.S. equity indices experienced a significant rally, propelled by widespread sector gains as government bond yields fell in anticipation of September rate-cut indications from the Federal Reserve in its forthcoming July policy statement. In addition, Microsoft Corporation ($MSFT) mitigated its overnight share-price decline, contributing positively to market sentiments.
The Nasdaq Composite soared by 2.6%, reaching a noteworthy 17,585.6 points. Concurrently, the S&P 500 index climbed 1.7% to hit 5,526.5 points, while the Dow Jones Industrial Average recorded a modest increase of 0.6%, arriving at 40,980.5 points as midday approached on Wednesday. Investors are eagerly awaiting the Federal Open Market Committee's policy statement, which is scheduled for release at 2:00 PM ET.
This will be followed by a press conference held by Federal Reserve Chair Jerome Powell at 2:30 PM ET. According to the CME FedWatch tool, there is a striking 97% probability that the Fed will maintain its current target interest rate range of 5.25% to 5.5% for July. However, projections for September show an 88% likelihood of a rate cut, as rising evidence suggests that inflation is sustainably trending down towards the Fed’s target range of 2%, amid signs of a softening labor market.
In the bond market, most Treasury yields declined, with the yield on the 10-year Treasury note falling by 3.8 basis points to settle at 4.1%, and the 30-year Treasury yield decreasing by 5 basis points to 4.35%. Turning to corporate developments, Microsoft Corporation ($MSFT) reported stronger-than-expected fiscal fourth-quarter results late Tuesday, although its intelligent cloud revenue lagged behind Wall Street’s projections.
Consequently, shares slid intraday by 1.7%, following a substantial drop exceeding 6% during after-hours trading sessions on Tuesday. ASML Holding N.V. ($ASML) appeared poised to feature on a list of semiconductor companies exempt from an extensive new trade restriction aimed at China, as reported by various media outlets on Tuesday.
Speculations abound that the U.S. government is preparing to impose fresh export limitations to prevent China from obtaining advanced semiconductor technologies. Both ASML and other corporations based in the Netherlands, as well as Japanese companies, would reportedly be exempt from these restrictions.
Consequently, shares of leading semiconductor firms such as Nvidia Corporation ($NVDA), Broadcom Inc. ($AVGO), Micron Technology, Inc. ($MU), and ASML ($ASML) surged intra-day. All sectors within the three primary indices experienced gains, with technology, consumer discretionary, and communication services leading the charge.
This comprehensive rally encompassed utilities, industrials, and materials sectors as well. From an economic perspective, the ADP’s monthly measure of private payrolls indicated a rise of 122,000 in July, falling short of expectations compiled by Bloomberg, which forecasted an increase of 150,000.
The present July figure is an upward revision from a previously reported increase of 155,000 in June. In the commodities market, West Texas Intermediate crude oil surged by 3.6%, reaching $77.42 per barrel..